Praneeta Mahajan
Hamilton, May 17, 2023
New Zealand house prices were essentially flat in April according to Real Estate Institute New Zealand (REINZ) House Price Index.
This is the first time in about eighteen months or so that house prices have not fallen as predicted and shown signs of cooling down.
Viewed in conjunction with March’s modest 0.1% fall, it looks increasingly like the pace of cooling in the housing market is easing and perhaps even plateauing.
Glimpses of green shoots
REINZ Chief Executive Jen Baird said, “Salespeople across the country are reporting glimpses of green shoots in the market this month as first home buyers show more interest after the Reserve Bank’s announcement on the easing of LVR restrictions. Our members are seeing further alignment as vendors come with a desire to meet the market – those who are prepared to negotiate and be realistic are the ones selling, there are buyers out there ready to buy.”
Tentative improvements in housing market activity metrics suggest that perhaps it could be a stage of house prices plateauing.
A spokesperson for ASB Bank said in a monthly report, “It is an exaggeration to say that sales activity point to the market starting to simmer again (let alone come back on the boil), but the monthly data suggests it may at least by getting a little more lukewarm. Nationally, days to sell peaked at about 53 in February and has eased marginally to about 49.”
For regions that have slowed more sharply, the shortening in days to sell over that period has been more significant: from 51 to 45 in Auckland and from 69 to 52 in Wellington. Sales show a similar trend. At a national level, house sales reached their lowest point in December and have trended upward since then: 15% off their lows nationally and in Auckland, and about 10% higher in Wellington. Sales-to-listings ratios, a good measure of market tightness, have also managed a noticeable tick-up.
Medium-term dynamics
Activity measures give a good near-term indication of the housing market direction, but one needs to look at the underlying supply and demand dynamics for clues on medium-term moves. On that front, the trend points to the Three Is: Immigration, Interest Rates, and Inventory. Trends in all three look favourable for house prices as we look ahead to the end of the year and beyond:
Immigration continues to accelerate much more quickly than anticipated.
Stats NZ figures show strong net inflows and they are making strong upward revisions to prior figures. Annual PLT net inflows are set to hit record highs, more than 100,000 by year-end. The sharper and earlier recovery is a boon for population growth and implies housing demand will be stronger than previously expected.
Interest Rates: It also looks increasingly like mortgage rates are close to their peaks (there is scope for further upward pressure on shorter terms and especially variable rates, but longer terms are starting to ease). To be sure, plenty of borrowers are still to roll onto higher rates and mortgages will remain above their average over the last ten years, but the biggest rises are out of the way.
Inventory: Housing supply might no longer be increasing in the manner it did in 2021 and 2022 (at least relative to demand). New listings are now tracking down and total housing inventory is no longer increasing.
Anecdotally, there is still some building work in the pipeline, but construction activity is expected to cool down over the coming months in line with the broader economic slowdown.
ASB spokesperson said in a recent media statement, “All-up, we no longer expect house prices to fall as much as previously anticipated. The market looks to be finding a floor earlier than anticipated and both near-term and medium-term indicators are looking more favourable. On the whole, high population growth, constrained housing supply and a pause from the RBNZ (followed by cuts in 2024) should be a potent combo for house prices.”
Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.
